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Unwired Planet v. Huawei: An English Perspective on FRAND Royalties

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FRONDGuest Post by Professor Jorge L. Contreras

In the latest decision by the UK High Court of Justice (Patents) in Unwired Planet v. Huawei ([2017] EWHC 711 (Pat), 5 Apr. 2017], Mister Justice Colin Birss has issued a detailed and illuminating opinion regarding the assessment of royalties on standards-essential patents (SEPs) that are subject to FRAND (fair, reasonable and non-discriminatory) licensing commitments.  Among the important and potentially controversial rulings in the case are:

  1. Single Royalty: there is but a single FRAND royalty rate applicable to any given set of SEPs and circumstances,
  2. Significance of Overstep: neither a breach of contract nor a competition claim for abuse of dominance will succeed unless a SEP holder’s offer is significantly above the true FRAND rate,
  3. Global License: FRAND licenses for global market players are necessarily global licenses and should not be limited to a single jurisdiction, and
  4. Soft-Edge: the “non-discrimination” (ND) prong of the FRAND commitment does not imply a “hard-edged” test in which a licensee may challenge the FRAND license that it has been granted on the basis that another similarly situated licensee has been granted a lower rate, so long as the difference does not distort competition between the two licensees.

Background

This case began in 2014 when Unwired Planet, a U.S.-based patent assertion entity, sued Google, Samsung and Huawei for infringement under six UK patents (corresponding actions were filed in Germany).  Unwired Planet claimed that five of the asserted patents, which it acquired from Ericsson in 2013 as part of a portfolio comprising approximately 2000 patents, were essential to the 2G, 3G and 4G wireless telecommunications standards developed under the auspices of the European Telecommunications Standards Institute (ETSI).  Because Ericsson participated in development of the standards at ETSI, any patents shown to be SEPs would necessarily be encumbered by Ericsson’s FRAND commitment to ETSI.

The UK proceedings involved numerous stages, including five scheduled “technical trials” which would determine whether each of the asserted patents was valid, infringed and essential to the ETSI standards.  During these proceedings Google and Samsung settled with Unwired Planet and Ericsson (which receives a portion of the licensing and settlement revenue earned by Unwired Planet from the patents), leaving Huawei as the sole UK defendant.  By April 2016 three of the technical trials had been completed, resulting in findings that two of the asserted patents were invalid and that two were both valid and essential to the standards.  These findings are currently under appeal. The parties then agreed to suspend further technical trials.  In October 2016 a “non-technical” trial began regarding issues of competition law, FRAND, injunction and damages.  Hearings were concluded in December 2016, and the court’s opinion and judgment were issued on April 5, 2017.

A. The High Court’s Decision – Overview

The principal questions before the court were (1) the level of the FRAND royalty for Unwired Planet’s SEPs, (2) whether Unwired Planet abused a dominant position in violation of Section 102 of the Treaty for the Formation of the European Union (TFEU) by failing to adhere to the procedural requirements for FRAND negotiations outlined by the European Court of Justice (CJEU) in Huawei v. ZTE (2014), and (3) whether an injunction should issue in the case.  In the below discussion, Paragraph numbers (¶) correspond to the numbered paragraphs in the High Court’s April 2017 opinion.

B. FRAND Commitments – General Observations

Justice Birss begins his opinion with some general observations and background about the standard-setting process and FRAND commitments.  A few notable points emerge from this discussion. (more…)

Guest Post: Administrative Law Matters Even More following Cuozzo Speed Technologies v. Lee

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By David Boundy

David Boundy of Cambridge Technology Law LLC, a patent law firm in Cambridge, Massachusetts, practices at the intersection of patent and administrative law, and consults with other firms on PTAB trials and appeals. In 2007–09, David led the teams that successfully urged the Office of Management and Budget to quash the USPTO’s continuations, claims, information disclosure statements, and appeal regulations under the Paperwork Reduction Act.

This paper is a short version of an article in the current issue of ABA Landslide, vol. 9, no. 3, electronic edition.  It’s a follow up to my earlier paper on the Cuozzo case, which ran in Patently-O in February 2015.

Cuozzo Speed Technologies v. Lee[1] illustrates an important lesson for the patent bar: federal courts are far more familiar with administrative law than with patent law. Almost every federal court hears several times as many administrative law cases as patent cases. Even the Federal Circuit sees at least as many administrative law issues (involving various federal employees and contracts) as patent law issues. We patent lawyers need better administrative law issue spotting skills, and when a case presents them, we must argue on administrative law grounds with administrative law expertise. Basic principles of good advocacy urge us to argue our cases on the courts’ choice of turf.

Cuozzo is a prime illustration.  In Cuozzo, the Supreme Court narrowly decided that the PTO’s decision to institute an inter partes review (IPR) against Cuozzo’s patent was unreviewable.  Notably, the Court’s reasoning clarifies that many decisions to institute are judicially reviewable, so long as the issues are cloaked in administrative law terms rather than patent law terms. Cuozzo’s loss stems from Cuozzo’s briefing that failed to mention a dead-on administrative law statute, and that was all but silent on the Supreme Court’s administrative law precedent. Cuozzo creates many future opportunities for informed administrative law advocacy.

The AIA, Its Preclusion Statutes, and Cuozzo’s Path to the Supreme Court

The 2011 America Invents Act (AIA) created new patent reviews within the United States Patent and Trademark Office (USPTO): inter partes review (IPR), post-grant review (PGR), and covered business method review (CBM). Congress included preclusion statutes that limit judicial review of USPTO decisions to institute such reviews.

The preclusion statutes for IPR and PGR decisions to institute, 35 U.S.C. § 314(d) and § 324(e) respectively, are essentially similar: “The determination by the Director whether to institute [a review] under this section shall be final and nonappealable.” Compared to other preclusion statutes (discussed in the full Landslide paper), this is decidedly on the weak end of the spectrum of preclusion statutes.

In February 2015, the Federal Circuit gave its first deep consideration to these statutes in In re Cuozzo Speed Technologies LLC.[2] The IPR petition against Cuozzo’s patent had applied reference A to claim 10, and references A, B, and C to claim 17 (which depended from claim 10). However, the Patent Trial and Appeal Board (PTAB) instituted on references A, B, and C against claim 10. The PTAB cited no statute or regulation, only its own naked claim of “discretion” to mix and match among the grounds in the petition.

The IPR ended in cancellation of claim 10, on references A, B, and C.

Cuozzo appealed the final decision to the Federal Circuit, and challenged the decision to institute. The Federal Circuit held that § 314(d) precluded all review of all issues embedded in a decision to institute: “On its face, the provision is not directed to precluding review only before a final decision. It is written to exclude all review of the decision whether to institute review.”[3]

In June 2016, the Supreme Court issued its further decision.  Where all decisions leave open issues, Cuozzo introduces several internal contradictions.  Let’s look at the background administrative law case law, and how Cuozzo fits—or misfits.

APA § 706: Government-Wide Grounds of Judicial Review

The Administrative Procedure Act (APA), in 5 U.S.C. § 706(2), confines judicial review of agency action to a specific list of errors—a court may set aside agency actions that are:

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;  …
(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;
(D) without observance of procedure required by law; …

Section 706(2) is famously deferential to agencies, but it doesn’t insulate agencies totally. Courts set aside agency decisions that fail standards of “reasoned decisionmaking” by failing to explain an important point, giving an irrelevant explanation, omitting consideration of important factors or basing a decision on impermissible factors, deciding without evidence, deciding on legal error, acting beyond jurisdictional authority, and the like.

APA § 704: Preliminary Decisions Are Reviewable with Final Agency Action

Procedural lapses usually find review under 5 U.S.C. § 704: “A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action.” Thus, if an agency’s final decision is infected by error earlier in the process, the final decision can be attacked on the basis of that underlying error.

Supreme Court’s Presumption of Judicial Review

Since the days of Chief Justice John Marshall, the Supreme Court has relied on a strong presumption that judicial review is available for executive branch action.[4] Agency decisions are presumed to be reviewable, and preclusion statutes are construed narrowly. Even within the scope of preclusion, an agency decision that reflects “brazen disregard” of procedure, or “abuse,” or that has sufficiently grave consequences, often can be reviewed.  Likewise, the Court has always held agencies to scrupulous observance of their own procedures. The presumption of review has always been extraordinarily high for procedure, and the “holes” in preclusion statutes for procedure and “abuse” have always been quite large. Cuozzo is an extraordinary outlier. Among the principles established in Supreme Court precedent:

  • Courts accept judicial review of underlying issues in agency decisions, even if the final decisions are unreviewable, especially where procedural fairness is at stake.[5]
  • Preclusion statutes are read narrowly—they preclude only what they say they preclude, and no more. Even where a statute precludes review of an end result decision, underlying issues are not precluded unless the preclusion statute speaks expressly to those underlying issues.  “[R]eview is available to determine whether there has been a substantial departure from important procedural rights, a misconstruction of the governing legislation, or some like error going to the heart of the administrative determination.”[6]
  • Courts read statutes closely to split issues finely, and will review issues (especially underlying issues) that differ by a hair’s breadth from precluded issues. When a statute precludes benefit amounts for individual claimants, “challenges to the validity of the Secretary’s instructions and regulations[] are cognizable in courts of law.”[7]
  • When an agency statute, regulation, or guidance promises the public that an agency or agency employee “must” or “will,” the agency must follow those procedures “scrupulously.” Review of agency decisions under § 706(2)(D), “without observance of procedure required by law,” is “strict” and “without deference.”[8]

Review under § 704/§ 706 is a persistent substrate. To preclude review, especially of underlying issues, Congress must speak expressly.

Cuozzo’s Brief, the Majority Opinion, and the End Result: Cuozzo’s Specific Institution Is Nonreviewable

The Cuozzo majority opinion follows the basic contour of 50 years of precedent: preclusion statutes are to be read narrowly. However, on the facts, Cuozzo lost—the Court characterized Cuozzo’s complaint to be a “mine-run claim,” “an ordinary dispute about the application of certain relevant patent statutes,” and “little more than a challenge to the Patent Office’s conclusion, under § 314(a), that the ‘information presented in the petition’ warranted review.”[9] That is, the Supreme Court understood the case to be a good faith difference of opinion in application of validly promulgated law, not a case of an agency tribunal exercising naked “discretion” against a party, making up new rules on the fly with no grounding in any text, and asserting those new rules in a context with no opportunity for rejoinder. Because the Court was not informed of the procedural basis for the case, the Cuozzo opinion stands in striking contrast with the Court’s precedent that requires agencies’ “scrupulous” observance of procedure, and strict “no deference” judicial review for procedural issues.

The Supreme Court majority opinion embeds a number of internal contradictions that leave a great deal of unclear ground. The majority’s holding, if applied to the facts—at least the procedural facts as we patent lawyers understand them—leads to the opposite result.

Most of these contradictions in the majority opinion, and perhaps the final result itself, are invited error. Cuozzo’s brief treats the case as a patent law case, arguing page after page of Title 35 U.S.C. and Federal Circuit patent law cases.[10] Cuozzo’s opening brief cites Supreme Court “preclusion of review” cases only as a cursory afterthought—a single string cite, with no discussion of analogies to precedential cases. The brief compounds the error by citing a 1946 case that had been overruled by the Supreme Court in 2013.  The table of authorities in Cuozzo’s opening brief has only a single cite to Title 5 U.S.C., and only one more in the reply brief.

But reviewability is an administrative law issue, and that’s where the Court decided it.

Even though Cuozzo’s briefs are all but irrelevant to the administrative law bases on which the Court decided the case, the reasoning comes so close to going Cuozzo’s way. Cuozzo demonstrates the importance of identifying the turf where a court is likely to decide an issue, and arguing it there.  And that may well be administrative law, rather than patent law.

Cuozzo’s “Long Paragraph”

The heart of the majority opinion is a long paragraph toward the end of section II, beginning “Nonetheless.” The majority explains that most issues arising under patent law are precluded, but that issues arising under other bodies of law are not. Review remains available for constitutional questions, and most importantly, for issues slotted into one of the pigeonholes of APA § 706.  The latter half of the “long paragraph” reads as follows:

[W]e do not categorically preclude review of a final decision where a petition fails to give “sufficient notice” such that there is a due process problem with the entire proceeding, nor does our interpretation enable the agency to act outside its statutory limits by, for example, canceling a patent claim for “indefiniteness under § 112” in inter partes review. Such “shenanigans” may be properly reviewable in the context of § 319 and under the Administrative Procedure Act, which enables reviewing courts to “set aside agency action” that is “contrary to constitutional right,” “in excess of statutory jurisdiction,” or “arbitrary [and] capricious.”[11]

The latter half of the long paragraph, especially the last sentence, opens a wide barn door. The Cuozzo majority’s long paragraph indicates that the full reach of § 706 applies to underlying issues in decisions to institute.  Cuozzo tells us that issues that are losers when presented in patent law vocabulary become winners when wrapped in administrative law vocabulary.

Cuozzo Could Have Argued an Administrative Law Jurisdictional Issue

Cuozzo’s brief doesn’t squarely present the issue of the PTAB’s transgression of its own jurisdictional boundaries. Section 312(a) reads, “A petition . . . may be considered only if . . . the petition identifies, in writing and with particularity, each claim challenged, the grounds on which the challenge to each claim is based . . . .” Section 314(a) reads, “The Director may not authorize [institution of an IPR] unless the Director determines that the information presented in the petition . . . shows that there is a reasonable likelihood that the petitioner would prevail . . . .” These are plainly jurisdictional statutes, confining jurisdiction to the grounds in the petition. The APA, in § 706(2)(C), provides that a court shall set aside agency action “in excess of statutory jurisdiction.” Yet, Cuozzo’s brief argues only breaches of the AIA, not the administrative law jurisdictional issues that—the majority tells us—would be reviewable under administrative law principles.

The Supreme Court has been quite strict in enforcing agencies’ jurisdictional boundaries, no matter (in the Cuozzo majority’s words) how compelling “one important congressional objective” might be.[12]

Cuozzo’s brief fleetingly nibbles at the edges of the issue, and even cites one of the important cases in this line (for a different proposition), but never squarely frames the challenge as “in excess of [the agency’s] jurisdiction”—neither brief mentions § 706 at all.  And thus Cuozzo lost the issue.

The latter half of Cuozzo’s “long paragraph” places jurisdictional issues within the scope of judicial review, so long as they are framed in an § 706(2)(C) administrative law context, not a patent law context.  Subject matter jurisdiction is central to a court’s duty to prevent agencies from “act[ing] outside . . . statutory limits,” or in the language of § 706, “in excess of statutory jurisdiction.”

Had the issue been presented squarely as a challenge to PTAB action beyond its jurisdiction, with the patent law issues argued as underlying support for APA § 706(2)(C) “in excess of jurisdiction” grounds, Cuozzo likely would have obtained a favorable result, and the Court majority would not have been left grasping at inconsistent straws to reach its decision.

Several more omissions from Cuozzo’s brief, and internal contradictions in the majority opinion, are discussed in the full Landslide paper.  The full paper shows that Cuozzo lost a very winnable case because the opening brief argued patent law principles to the near exclusion of administrative law principles. The patent bar is left with a resultant set of internal contradictions in the Cuozzo decison, with all the problems and opportunities they create.  And the Federal Circuit is left with a difficult task of reconciling Cuozzo’s reasoning against its end result.

Conclusion

The full paper gives a number of other examples of questions that come out differently depending on whether they’re argued as patent law issues or administrative law issues. There are many differences between the powers of an Article III court and of an agency tribunal, differences between appellate review of an Article III court vs. judicial review of an agency, differences in the arguments that an appellant and appellee can raise, and differences in limits on raising new issues on appeal. Unfortunately, Cuozzo’s brief did not exploit those differences or cite the applicable administrative law.

The key take-away is that almost every PTAB proceeding and appeal presents a “target rich environment” of administrative law issues. Teams that include administrative law expertise will successfully exploit many opportunities that are invisible to teams without that expertise.

Because of internal tensions in the Cuozzo decision, many issues remain to be decided by the Federal Circuit, and will be decided differently depending on how well parties match their argument turf to courts’ choice of decision turf.

Endnotes

[1]. Cuozzo Speed Techs. v. Lee (Cuozzo III), 136 S. Ct. 2131 (2016).

[2]. In re Cuozzo Speed Techs. LLC (Cuozzo I), 778 F.3d 1271 (Fed. Cir. 2015), reissued without change to the reviewability discussion, Cuozzo II, 793 F.3d 1268 (Fed. Cir. 2015).

[3]. Cuozzo I, 778 F.3d at 1276.

[4]. 5 U.S.C. § 702 (“A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.”); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971).

[5]. Service v. Dulles, 354 U.S. 363 (1957); Vitarelli v. Seaton, 359 U.S. 535 (1959).

[6]. Lindahl v. Office of Personnel Management,470 U.S. 768, 791 (1985) (internal quotation marks omitted).

[7]. Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667, 680 (1986).

[8]. Reuters Ltd. v. FCC, 781 F.2d 946, 950–51 (D.C. Cir. 1986); see also Berkovitz v. United States, 486 U.S. 531, 544 (1988) (“The agency has no discretion to deviate from [its procedural regulations].”).

[9]. Cuozzo III, 136 S. Ct. 2131, 2136, 2139, 2142 (2016).

[10]. See Brief for the Petitioner, Cuozzo III (No. 15-446), 2016 WL 737452 at xiv, 52-53, 54 (Feb. 22, 20142016); Reply Brief for the Petitioner at iii, Cuozzo III, 2016 WL 1554733 (Apr. 15, 2016).

[11]. Cuozzo III at 2141–42 (majority opinion).

[12]. FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125 (2000)

Santa Clara – Duke Law Patent Quality Conference: Patent Quality – It’s Time

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Guest Post from Professors Arti Rai and Colleen Chien.

“I know well the difficulty of drawing a line between the things which are worth to the public the embarrassment of an exclusive patent, and those which are not.“ – Thomas Jefferson, 1813

Santa Clara –Duke Law Patent Quality Conference: Patent Quality – It’s Time

At 1 pm today, USPTO Director Michelle Lee will be testifying before the House Judiciary Committee at a USPTO Oversight Hearing.  The hearing will focus on questions of patent quality raised by two recent GAO reports (here and here) as well as the issue of examiner reporting of time raised by a  report by the Department of Commerce’s Office of the Inspector General (here).

As we have discussed, the two of us are following closely the USPTO’s efforts to address issues of patent quality through its Enhanced Patent Quality Initiative (EPQI) – an urgent but also enduring challenge that one of our nation’s first patent examiners, Thomas Jefferson, struggled with.  Our institutions, the Duke Law Center for Innovation Policy and the Santa Clara High Tech Law Institute, are also co-sponsoring two conferences on EPQI and other levers for improving patent quality.

On Friday, September 9, we held the first of these conferences at Santa Clara Law School.  The conference brought together Deputy Commissioner for Patent Quality Valencia Martin-Wallace, Deputy Commissioner for Patents Andy Faile, former PTO Director David Kappos, EPO Director of Quality Support Alfred Spigarelli, GAO officials, industry representatives, and legal academics.  Here we provide a brief summary of the event.  Video and links to the presentations and related papers will be available here (a uncut version of the video is here). Several of the commentators will be publishing op-ed versions of their remarks with IPLaw360 from now until the December 13, 2016 conference, and the Berkeley Technology Law Journal has published short commentaries from a number of the speakers on their topics.

Valencia Martin-Wallace began by highlighting 6 aspects of the EPQI: case studies the USPTO is implementing in response to stakeholder requests; the Master Review Form (MRF), which is now being used as the exclusive review form by the Office of Patent Quality Assurance; other quality metrics; USPTO study of post-grant outcomes for purposes of improving ex ante patent examination, both in child applications of parents there are the subject of a post-grant review and more generally; a post-prosecution pilot; and a clarity of the record pilot.

Martin-Wallace’s comprehensive discussion of the MRF and quality metrics honed in on the difficult question of what quality means and how the PTO should measure it.  According to the USPTO, the MRF’s focus on clarity and correctness of the examination is a key aspect of how the agency measures product quality. The agency is also very interested in process quality, by which it means a focus on reducing rework and ensuring consistency.  The USPTO will also continue to monitor perceptions of quality through internal and external quality surveys. USPTO Case studies on 101 – the compliance of rejections with 35 U.S.C. 101 Official Guidance and the consistency of the application of 101 across art units/technology centers – will be issued on September 30 and December 9 respectively.  They will be followed by case studies on other types of rejections.

Martin-Wallace’s presentation was followed by a panel discussion of claim clarity and examination consistency.  Peter Menell discussed how claim clarity could be improved through a claim template [link] and the importance of putting all interactions with the examiner into the record.  Charles Duan also highlighted the importance of a clear prosecution record, particularly for purposes of allowing courts to find claim scope disavowal.  Jay Kesan focused on the lack of standardized claim language in software and suggested mechanisms for improving standardization.  Finally, Xavier Jaravel of Stanford presented his research with Josh Feng of Harvard showing that NPEs tend to purchase patents granted by lenient examiners that are incremental and vaguely worded; they estimate that a one-standard deviation change in the “examiner effect” could lower the rate of litigation and NPE purchased patents by 50%.

The conference then turned to issue of examiner time allocation, and in particular ensuring adequate time for search.  Deputy Commissioner for Patent Operations Andy Faile outlined the count system and the time that examiners are given to achieve each count.  On the first round of examination, examiners receive 1.25 counts for the first office action; 0.25 counts for the final rejection in that round; 0.75 counts for an allowance disposal: and 0.5 counts for termination of the first round of examination (“abandonment”).  The time allocated to achieve each count is a function of the area of technology – for example, while 16.6 hours are allocated per disposal in fishing lures, examiners are given almost double that, 27.7 hours per satellite communications disposal. It is also a function of GS-level of the examiner – as in the EPO, senior examiners at the USPTO are expected to produce more work than junior examiners.

Assistant GAO director Robert Marek next discussed highlights from the agency’s studies of patent quality and prior art search.  These studies relied heavily on a survey that produced 2669 USPTO examiner respondents.  The survey found that 70% of examiners reported having insufficient time to examine applications; the majority reported wanting more time for prior art search; and the majority also reported encountering vague and indefinite claims.  Examiners also reported conducting only limited searches for non-patent literature (NPL).  On the issue of search, the GAO recommends that the PTO develop guidance of what constitutes a good prior art search; identify key sources of NPL; monitor search quality; and assess the time examiners need for search.  On claim clarity, GAO recommends the PTO consider requiring patent applicants to include term glossaries or claim charts.

The morning concluded with a panel discussion of prior art search and time.  Colleen Chien discussed the findings of a recently released study that suggests that the EPO is much more likely to cite NPL in its search reports than PTO examiners are to rely upon NPL in their examination, despite that the PTO’s examiners are more likely to receive NPL, through IDS’. The paper argues that that the greater amount of time that EPO examiners spend on search (8-12 hours per app, vs. 4-5 hours at the PTO), contributes to this difference. However, the PTAB, which intensely reviews challenged patents, appears to cite NPL even more than EPO examiners do. Michael Frakes and Melissa Wasserman then summarized their empirical research on 1.4 million utility patent applications initiated after March 2001 and disposed of by July 2012.  Their research suggests that tightening of examiner time constraints as they move up GS-levels appears to lead to more grants, less examiner citation of prior art, and fewer time-intensive non-obviousness rejections.  Their analysis, which follows examiners as they rise up GS-levels within art units, capitalizes on the essentially random assignment of applications within an art unit and employs an examiner fixed-effect design. Moderator Karen Wong called the After Final Consideration Pilot 2.0 one of the PTO’s best inventions, and Steven Reid and others noted that the Post-Prosecution Pilot (P3) examination was also a valuable option for achieving resolution without the need for a full request for continued examination (RCE).

Jay Kesan and Colleen Chien kicked off the afternoon with a discussion of the differences between EPO and USPTO processes (the former bifurcates search and examination, doesn’t allow for continuations (but does tolerate divisionals), and charges higher fees, earlier), perceptions of the two institutions (based on a recent survey of ~650 practitioners), and outcomes. Drawing upon matched pair analysis, Kesan’s research suggests that on average EPO patents have fewer claims, and the claims are longer and have greater pendency. Chien’s paper suggests that the lower EPO allowance rate isn’t driven by a higher rejection rate but more applicant withdrawals.

EPO Patent Quality Director Alfred Spigarelli’s presentation was titled: “Patent Quality: Get it Right the First Time.” He emphasized the human resources component of the patent quality equation, from the hiring standards the EPO applies (e.g. examiners must be able to actively work in three languages), to the training each EPO examiner receives, to the low turnover rate. Search is viewed as the cornerstone of the patent examination process, with 60% of time dedicated to search.

On the panel that followed (“Once and Done” and Differentiating Between Patents), Laura Sheridan outlined a proposal to increase quality and predictability by introducing greater finality into the patent application process.  Under Sheridan’s proposal, examination would terminate after a predetermined maximum number of office actions, and the application would be then adjudicated by a panel.  Steven Yelderman discussed the dynamic effects on RCE practice of recent changes to fees as well as mechanisms by which post-grant review could feed information back into initial patent examination. Sandy Swain discussed steps that could be taken by applicants now, without any policy changes, stressing the importance of open communication and clear documentation. Alan Marco presented a study in progress of litigated patents, suggesting that small entities are more likely to litigate and finding that (with the exception of continuations) applicant characteristics are more likely to be predictive of litigation than examination characteristics.

Studies have shown that delays in patent examination are detrimental to startup firms. For these firms, long pendency could be considered a sign of poor examination quality.  Building on this work, Arti Rai discussed her ongoing research on accelerated examination through the Track 1 program.  She finds that the program is in fact disproportionately used by small and micro entities. However, the top filers in the program are large entities, and she is studying whether their applications show signs of poor quality. Josh Makower, an investor, inventor, and entrepreneur in the biotechnology and medical device industry, said that all his startups used TrackOne, underscoring the importance of patents to them. According to Oskar Liivak’s interpretation, 35 USC 115 makes it a felony for a patent applicant to claim more broadly than the actual invention. Brian Love noted that the EPQI had two important gaps – already granted patents and the flexing of the USPTO’s fee-setting authority. He recommended raising maintenance fees to cull low-value, low-quality patents and decreasing PTAB fees.  Love’s proposals generated vigorous discussion.

Dave Kappos provided the final keynote of the day, noting that patent quality has been a focus for as long as we’ve had a patent commissioner. He noted that many efforts he oversaw during his administration to increase quality – giving examiner 2.5 more hours of time, redesigning the IT system, creating the Edison Scholar program, ensuring Examiner received training from industry experts, and many more. What didn’t work, he noted, was working with the AIPLA to devise a set of quality indicia for applicant filings that all agreed upon and that could be applied to applications. What he would work on, were he still in office, would include Track 3 (some version of deferred examination) and allocation of more time, not across the board, but as appropriate.

How will we know if the EPQI has been successful in two years? When this question was posed to them, closing panelists Faile, Martin-Wallace, and PTO Silicon Valley Director John Cabeca mentioned a few milestones: greater transparency and engagement of all members of the patent community, creative rethinking of the count system, more time for certain applications, and the leveraging of state of the art examination processes and resources.

* * * * *

Arti Rai is the Elvin R. Latty Professor of Law at Duke Law School and co-Director, Duke Law Center for Innovation Policy.  Colleen Chien is Associate Professor of Law at Santa Clara University School of Law.

GEA Process: Appealing IPR Termination Decision

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Following Cuozzo, I largely wrote-off GEA Process (“GPNA”) v. Steuben as having any chance for certiorari. However, the petitioner’s newly filed reply brief offers an opportunity for revival.

In its decision on an IPR appeal, the Federal Circuit held that it lacked jurisdiction to review claims that the PTAB exceeded the PTO’s statutory authority by “terminating and vacating five instituted and near-final IPR proceedings, without determining patentability vel non as Congress had intended.”  Thus, the question presented is:

Whether the Federal Circuit erred in holding that, even if the Patent Trial and Appeal Board exceeded its statutory authority by terminating an instituted IPR proceeding with a final written decision, the PTAB’s final decision is judicially non-reviewable.

Following the original petition filing, the Supreme Court decided Cuozzo v. Lee and held that the PTO’s decision to institute an inter partes review is not appealable.

GPNA distinguishes its petition from Cuozzo on the grounds that it “is seeking to appeal is a final written decision terminating GPNA’s IPR proceedings without deciding patentability, nine months after granting institution (“Termination Decision”).”

GPNA is not appealing or seeking to change those institution decisions. . . . The Termination Decision was based upon the panel’s legal error in assuming that 35 U.S.C. § 312(a)(2) stated a jurisdictional requirement, the failure of which nullified the validity of the proceeding. . .

[T]his Petition addresses an agency action that is not barred from review by § 314(d) and it presents a legal issue as to which the salutary “presumption of reviewability” should apply. The Federal Circuit erred in summarily refusing jurisdiction, both by appeal and writ of mandamus, and this Petition should be granted.

[GEA Petition; Steuben Brief in Opposition; GEA Process Reply]

The uphill battle for certiorari here begins with the fact that the PTAB has now changed its approach now interprets § 312(a)(2) as suggested by GPNA.  Going to the merits, the question is whether termination of an IPR because it never should-have-instituted is effectively a decision regarding institution.

The Supreme Court has scheduled its first conference on the case for September 26, 2016.

35 U.S. Code § 316 – Conduct of inter partes review

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(a)Regulations.—The Director shall prescribe regulations—

(1) providing that the file of any proceeding under this chapter shall be made available to the public, except that any petition or document filed with the intent that it be sealed shall, if accompanied by a motion to seal, be treated as sealed pending the outcome of the ruling on the motion;
(2) setting forth the standards for the showing of sufficient grounds to institute a review under section 314(a);
(3) establishing procedures for the submission of supplemental information after the petition is filed;
(4) establishing and governing inter partes review under this chapter and the relationship of such review to other proceedings under this title;
(5) setting forth standards and procedures for discovery of relevant evidence, including that such discovery shall be limited to—
(A) the deposition of witnesses submitting affidavits or declarations; and
(B) what is otherwise necessary in the interest of justice;
(6) prescribing sanctions for abuse of discovery, abuse of process, or any other improper use of the proceeding, such as to harass or to cause unnecessary delay or an unnecessary increase in the cost of the proceeding;
(7) providing for protective orders governing the exchange and submission of confidential information;
(8) providing for the filing by the patent owner of a response to the petition under section 313 after an inter partes review has been instituted, and requiring that the patent owner file with such response, through affidavits or declarations, any additional factual evidence and expert opinions on which the patent owner relies in support of the response;
(9) setting forth standards and procedures for allowing the patent owner to move to amend the patent under subsection (d) to cancel a challenged claim or propose a reasonable number of substitute claims, and ensuring that any information submitted by the patent owner in support of any amendment entered under subsection (d) is made available to the public as part of the prosecution history of the patent;
(10) providing either party with the right to an oral hearing as part of the proceeding;
(11) requiring that the final determination in an inter partes review be issued not later than 1 year after the date on which the Director notices the institution of a review under this chapter, except that the Director may, for good cause shown, extend the 1-year period by not more than 6 months, and may adjust the time periods in this paragraph in the case of joinder under section 315(c);
(12) setting a time period for requesting joinder under section 315(c); and
(13) providing the petitioner with at least 1 opportunity to file written comments within a time period established by the Director.

(b)Considerations.—

In prescribing regulations under this section, the Director shall consider the effect of any such regulation on the economy, the integrity of the patent system, the efficient administration of the Office, and the ability of the Office to timely complete proceedings instituted under this chapter.

(c)Patent Trial and Appeal Board.—

The Patent Trial and Appeal Board shall, in accordance with section 6, conduct each inter partes review instituted under this chapter.

(d) Amendment of the Patent.—

(1)In general.—During an inter partes review instituted under this chapter, the patent owner may file 1 motion to amend the patent in 1 or more of the following ways:
(A) Cancel any challenged patent claim.
(B) For each challenged claim, propose a reasonable number of substitute claims.
(2)Additional motions.—
Additional motions to amend may be permitted upon the joint request of the petitioner and the patent owner to materially advance the settlement of a proceeding under section 317, or as permitted by regulations prescribed by the Director.
(3)Scope of claims.—
An amendment under this subsection may not enlarge the scope of the claims of the patent or introduce new matter.

(e)Evidentiary Standards.—

In an inter partes review instituted under this chapter, the petitioner shall have the burden of proving a proposition of unpatentability by a preponderance of the evidence.

Pending Supreme Court Patent Cases 2016 (April 18 Update)

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by Dennis Crouch

Cuozzo: Prof Mann provides his preview of the April 25 oral arguments in Cuozzo v. Lee; and Cuozzo has filed its reply brief. Neither document address my the mootness concern regarding Cuozzo’s demand for an ordinary construction of claim terms rather than their broadest reasonable interpretation.  As far as I have seen, nothing in the record suggests that a change in claim interpretation standard would alter the PTO’s determination.

Following its April 15 Conference, the Supreme Court denied certiorari in a set of cases, including Vermont v. MPHJ; Limelight v. Akamai; Hemopet v. Hill’s Pet Nutrition; and Tas v. Beachy. In its April 1 Conference, the Court denied cert in Retirement Capital v. US Bancorp. That case had questioned whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2).

The only patent cases surviving the April 15 conference are (1) Interval Licensing v. Lee that asks the same question as Cuozzo: Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?; and (2) Medinol v. Cordis that focuses on whether “the equitable defense of laches [may be used to] bar legal claims for damages that are timely under the express terms of the Patent Act.”   Medinol is conceptually linked to the SCA Hygiene case that also raises the laches issue. The court will consider both cases in its April 22 conference and may likely couple the decision to grant/deny.  The court is also scheduled to consider Cloud Satchel (abstract idea eligibility) and Globus Medical (appellate jurisdiction) at Friday’s conference. Neither of these cases offer much hope for the respective petitioner.

In Cooper v. Lee, the US Government filed its brief opposing certiorari. The government argues that Cooper’s Article III challenge to the IPR system “lack’s merit.”

[P]atents are quintessential “public rights” whose issuance and cancellation Congress may permissible entrust to a non-Article III tribunal. . . . Pursuant to its constitutional authority to “promote the Progress of Science and useful Arts” by establishing a patent system, Congress created the PTO – an agency with “special expertise in evaluating patent applications.” Kappos v. Hyatt, 132 S. Ct. 1690 (2012). It directed that agency to issue a patent if “it appears that the applicant is entitled to a patent” under standards set by federal law, 35 U.S.C. 131. Patents are accordingly rights that “exist only by virtue of statute.” Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229 n.5 (1964). They “dispose of public rights held by the government on behalf of the people.” Teva Pharm. USA, Inc. v. Sandoz, Inc., 135 S. Ct. 831, 849 n.2 (2015) (Thomas, J., dissenting).

The government also argues that the posture of the case lacks merits – in particular that Cooper’s collateral challenge to the procedures doesn’t work.  Cooper has argued that “inter partes review violates Article III of the Constitution by authorizing an Executive Branch agency, rather than a court, to invalidate a previously issued patent.”

Daniel Bohnen has filed a brief on behalf of UK’s Chartered Institute of Patent Attorneys (CIPA) in support of the Sequenom v. Ariosa petition.   The brief argues that the court should look to “maintain international harmonisation in the law of patent-eligibility.”[AriosaCIPA].  More briefs in support of the petitioner are expected this week as is Ariosa’s opposition brief (if any).

Finally, Nova has filed its opposition in Dow v. Nova and is attempting to refocus attention on the merits of the indefiniteness decision rather than the procedure for reaching that decision.  The difference in question presented is interesting:

Dow: Whether factual findings underlying a district court’s determination on the definiteness of a patent claim under the Patent Act, 35 U.S.C. 112, like a district court’s factual findings underlying construction of a patent claim, are subject to appellate review only for clear error or substantial evidence rather than de novo review.

Nova: Whether the court of appeals correctly invalidated Dow’s patent claims as indefinite under 35 U.S.C. § 112.

Explaining its shift of the question, Nova argues that “Dow’s petition rests on a false premise that the Federal Circuit refuses to give deference to factual findings” that underlie the definiteness determination.  Nova is correct as to the Federal Circuit’s position — the only question here is whether the Supreme Court will order the appellate court to follow its own law in this case. [DowPetition][NovaOpposition]

The big list: (more…)

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Revision to IPR Duty of Candor: Broadening Duty?

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The USPTO today announced it was amending 37 CFR 42.11 to include a Rule 11 type certification.  I see a lot of issues but one relates to a post earlier last month I made here.

As the final rule now provides, with the key new language underlined:

(a) Duty of candor. Parties and individuals involved in the proceeding have a duty of candor and good faith to the Office during the course of a proceeding.

(b) Signature. Every petition, response, written motion, and other paper filed in a proceeding must comply with the signature requirements set forth in § 11.18(a) of this chapter. The Board may expunge any unsigned submission unless the omission is promptly corrected after being called to the counsel’s or party’s attention.

(c) Representations to the Board. By presenting to the Board a petition, response, written motion, or other paper—whether by signing, filing, submitting, or later advocating it—an attorney, registered practitioner, or unrepresented party attests to compliance with the certification requirements under § 11.18(b)(2) of this chapter.

In turn, Section 11.18(b)(2) provides:

 To the best of the party’s knowledge, information and belief, formed after an inquiry reasonable under the circumstances,
(i) The paper is not being presented for any improper purpose, such as to harass someone or to cause unnecessary delay or needless increase in the cost of any proceeding before the Office;
(ii) The other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law;
(iii) The allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and
(iv) The denials of factual contentions are warranted on the evidence, or if specifically so identified, are reasonably based on a lack of information or belief.

When you combine this with some other statements made by the USPTO (and PTAB cases quoted in the comment) in the announcement of the final rule, it is also clear that a patentee seeking to substitute an amended claim is representing that the proposed claim is patentable over all art known to it (query whether “prior art” includes sales?).  For example, the USPTO wrote:

[A] patent owner must argue for the patentability of the proposed substitute claims over the prior art of record, which include: (a.) Any material art in the prosecution history of the patent; (b.) any material art of record in the current proceeding, including art asserted in grounds on which the Board did not institute review; and (c.) any material art of record in any other proceeding before the Office involving the patent. Id. at 2. The Patent Owner must also distinguish over any art provided in light of a patent owner’s duty of candor, and any other prior art or arguments supplied by the petitioner, in conjunction with the requirement that the proposed substitute claims be narrower than the claims that are being replaced.

Where I end up is that this rule on its face is clearly broader than Rule 56:  the lawyer must certify that, based upon a reasonable investigation, that a substitute claim is patentable over all prior art known to a party or “persons involved” in an IPR.  Again, what about a substitute claim known to be unpatentable over non-art information?

Pending Supreme Court Patent Cases 2016 (January 20 Update)

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by Dennis Crouch

This week, the Supreme Court granted certiorari in the administrative patent review case of Cuozzo v. Lee. Cuozzo raises the following two questions: (1) Whether the court of appeals erred in holding that, in inter partes review (IPR) proceedings, the Patent Trial and Appeal Board may construe claims in an issued patent according to their broadest reasonable interpretation rather than their plain and ordinary meaning; and (2) whether the court of appeals erred in holding that, even if the Board exceeds its statutory authority in instituting an IPR proceeding, the Board’s decision whether to institute an IPR proceeding is judicially unreviewable. The petitioner (Cuozzo) now has forty-five days to file its opening merits brief with amici briefs due one week later.

The other major patent issue before the court this term involves the enhanced damages questions raised in the parallel cases of Halo and Stryker. Oral arguments are set for those cases for February 23, 2016. Although not a party, the Solicitor General has requested permission to participate in oral argument as amicus curiae and for divided argument filed. The US Government generally supported the petitioners’ position that the Federal Circuit has unduly limited the availability of enhanced damages for willful infringement and other egregious acts by an adjudged infringer.

This week, the Supreme Court also issued a GVR in Medtronic v. NuVasive – ordering the Federal Circuit to reconsider whether the mens rea evidence presented was sufficient to prove active inducement under Commil.

1. Petitions Granted:

2. Petitions Granted with immediate Vacatur and Remand (GVR)

3. Petitions for Writ of Certiorari Pending:

  • Design Patents: Samsung Electronics Co. v. Apple Inc., No 15-777 (design patent scope and damages calculation)
  • Inducement: Life Technologies Corporation, et al. v. Promega Corporation, No. 14-1538 (whether an entity can “induce itself” under 271(f)(1))(CVSG, awaiting government brief)
  • Inducement: Arthrex, Inc. v. Smith & Nephew, Inc., et al., No. 15-559 (Commil re-hash – if actions were “not objectively unreasonable” can they constitute inducement?)
  • Post Grant Admin: Achates Reference Publishing, Inc. v. Apple, Inc., et al., No. 15-842 (IPR institution decisions unreviewable, even when addressed in a final written decision by PTAB)
  • Post Grant Admin: Interval Licensing LLC v. Michelle K. Lee, No. 15-716 (Can the Patent and Trademark Office appropriately apply the “broadest reasonable interpretation” standard in construing patent claims in post-grant validity challenges?)
  • Claim Construction: Universal Lighting Technologies, Inc., v. Lighting Ballast Control LLC, No. 15-893 (intrinsic vs extrinsic evidence for claim construction).
  • Preclusion or Jurisdiction: Vermont v. MPHJ Technology Investments, LLC, No. 15-838 (Federal court jurisdiction in anti-troll consumer protection case)
  • Preclusion or Jurisdiction: Alexsam, Inc. v. The Gap, Inc., No. 15-736 (appellate jurisdiction over patents that were dropped from case pre-trial) (New Petition)
  • Preclusion or Jurisdiction:
    ePlus, Inc. v. Lawson Software, Inc., No. 15-639 (what happens with a finally-determined permanent injunction after PTO cancels the patent claim?)
  • Preclusion or Jurisdiction: Biogen MA, Inc. v. Japanese Foundation for Cancer Research, et al., No. 15-607 (Whether AIA eliminated federal district courts’ jurisdiction over patent interference actions under 35 U.S.C. § 146.)
  • Eligibility Challenges: Retirement Capital Access Management Company, LLC v. U.S. Bancorp, et al., No. 15-591 (Whether subject matter eligibility under 35 U.S.C. § 101 is a ground specified as a condition for patentability under 35 U.S.C. § 282(b)(2))
  • Claim Construction: Media Rights Technologies, Inc. v. Capital One Financial Corporation, et al., No. 15-725 (Claim Construction: whether there a strong presumption against construing terms as subject to 35 U.S.C. § 112p6 that do not recite the term “means.”)
  • Patent Term Adjustment Dispute: Daiichi Sankyo Company, Ltd. v. Michelle K. Lee, No. 15-652 (Patent Term Adjustment – whether the 180 day deadline applies; could bleed into admin law issues)
  • Damages: STC, Inc. v. Global Traffic Technologies, No. 15-592 (Whether marking the packaging of a patented article with patent notification satisfies the marking provision of 35 U.S.C. § 287(a) where the patented article itself is undisputedly capable of being marked.)
  • Damages: Innovention Toys, LLC v. MGA Entertainment, Inc., et al., No. 15-635 (Stryker/Halo follow-on – potential wait-and-see)

3. Petitions for Writ of Certiorari Denied:

  • Alps South, LLC v. The Ohio Willow Wood Company, No. 15-567
  • Allvoice Developments US, LLC v. Microsoft Corp., No. 15-538
  • OIP Technologies, Inc. v. Amazon.com, Inc., No. 15-642
  • Fivetech Technology Inc. v. Southco, Inc., No. 15-381
  • Tyco Healthcare Group LP, et al. v. Ethicon Endo-Surgery, Inc., No. 15-115
  • Nautilus, Inc. v. Biosig Instruments, Inc., No. 15-561
  • Chunghwa Picture Tubes, Ltd., et al. v. Eidos Display, LLC, et al., No. 15-288
  • Kenneth Butler, Sr. v. Balkamp Inc., et al., No. 15-273    
  • Arthrex, Inc. v. KFx Medical Corporation, No. 15-291
  • Daiichi Sankyo, Inc., et al. v. Apotex Inc., No. 15-281
  • Mylan Pharmaceuticals Inc. v. Apotex Inc., No. 15-307
  • Luv N’ Care, Ltd. v. Munchkin, Inc., No. 15-242
  • Automated Merchandising Systems, Inc. v. Michelle K. Lee, Director, United States Patent and Trademark Office, No. 15-326
  • I/P Engine, Inc. v. AOL Inc., et al., No. 14-1358
  • Interval Licensing LLC v. AOL Inc., et al., No. 14-1362
  • Content Extraction and Transmission LLC v. Wells Fargo Bank, National Association, et al., No. 14-1473
  • W.L. Gore & Associates, Inc. v. Bard Peripheral Vascular, Inc., et al., No. 15-41
  • NetAirus Technologies, LLC v. Apple Inc., No. 14-1353
  • Muffin Faye Anderson v. Kimberly-Clark Corporation, No. 14-10337
  • MobileMedia Ideas LLC v. Apple Inc., No. 15-206
  • SpeedTrack, Inc. v. Office Depot, Inc. et al., No. 15-461 (Kessler doctrine)
  • Rodney K. Morgan, et al. v. Global Traffic Technologies LLC, No. 15-602
  • Lakshmi Arunachalam v. JPMorgan Chase & Co., No. 15-691

4. Prior versions of this report:

 
 

IPR Challenge Moves Forward with One Step Back

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by Dennis Crouch

In a non-precedential order, the Federal Circuit has rejected Carl Cooper’s challenge to constitutional propriety of the inter partes review (IPR) system as implemented by the USPTO.  The identical issues had already been decided in MCM v. HP (Fed. Cir. 2015). In that case, the Federal Circuit held that the IPR system does not violate Article III of the U.S. Constitution nor does it violate the Seventh Amendment of the U.S. Constitution.  As I wrote in December, the MCM decision “essentially forecloses Carl Cooper’s parallel proceedings.”

Cooper had originally filed his appeal in the 4th Circuit Court of Appeals, but that court bumped the case to the Federal Circuit.

Of interest, Cooper himself motioned for summary affirmance, but has reserved his right to raise the appeal. In his filing on Cooper’s behalf, Rob Greenspoon wrote:

While Appellants strongly disagree with the Court’s decision in MCM Portfolio that IPR proceedings are constitutional, Appellants concede that because the issues in this appeal are closely related to those in MCM Portfolio, summary affirmance is appropriate. See United States v. Fortner, 455 F.3d 752, 754 (7th Cir. 2006) (“[S]ummary affirmance may be appropriate when a recent appellate decision directly resolves the appeal.”) (citing United States v. Young, 115 F.3d 834, 836 (11th Cir.1997) (per curiam)). In the interests of preserving the Court’s and the parties’ resources, Appellants respectfully request that this Court grant summary affirmance of the district court’s judgment. In making this request, Appellants preserve all rights to subsequent review.

Next stop appears to be en banc petition or petition for writ of certiorari.

Documents:

Obviousness: Despite KSR, Still Tough to Win in Court

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Ivera Medical v. Hospira (Fed. Cir. 2015)

On summary judgment, the district court found Ivera’s asserted patent claims invalid as obvious under 35 U.S.C. § 103. On appeal, the Federal Circuit has reversed – finding that Ivera’s submitted expert testimony raised genuine issues of material fact.

Ivera’s patents are directed to a more reliable mechanism for disinfecting connectors (such as an IV port).  The idea is basically a screw-on cap full of disinfectant.  

The patented cap at issue here is an improvement on the original idea found in several prior art references. In particular, Ivera added a vent in the cap “to allow evaporation of the cleaning agent from the inner cavity and to inhibit a buildup of pressure in the cap when the cleaning material is compressed by the site of the medical implement.”

Although the primary prior art reference (Hoang) did not disclose the vent limitations, the district court found – as a matter of law on summary judgment – that a person of skill in the art would have recognized the need for a vent to relieve pressure.  I suspect that the district court was swayed by the fact that the patent is also under final-rejection in an inter partes reexamination based upon the same prior art reference.  On appeal, the Federal Circuit found that the facts were not so clear.

Law of Obviousness:

“A party seeking to invalidate a patent on obviousness grounds must demonstrate by clear and convincing evidence that a skilled artisan would have been motivated to combine the teachings of the prior art references to achieve the claimed invention, and that the skilled artisan would have had a reasonable expectation of success in doing so.” InTouch Techs., Inc. v. VGO Commc’ns, Inc., 751 F.3d 1327 (Fed. Cir. 2014). Determining whether one of ordinary skill in the art would have been motivated to combine the teachings of different references is a flexible inquiry, and the motivation is not required to be found in any particular prior art reference. KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007).

Here, the evidence before the district court included declarations from Huang (the inventor of the prior art) and others explaining how the Ivera idea was a significant invention because it broke with the conventional wisdom of having a fluid tight seal.  The appellate court saw these submissions as sufficient to raise a genuine dispute of fact that cannot be resolved on summary judgment.

The panel also noted in passing that the examiner during the inter partes review had refused to consider the same declarations because they were filed late in the process — leading to the implication that – if filed earlier – the declarations might have changed the examiner’s viewpoint. The examiner’s reexamination decisions have been appealed to the PTAB and are awaiting judgment.

This case again highlights the power of expert evidence to explain the invention within the context of the prior art.

= = = = =

I should also note Ivera has a separate infringement case going against Hospira for another cap patent. In that case, the PTAB instituted an IPR (brought by another defendant) that case was settled before final judgment.  In a recent determination, the district court ruled on motion-in-limine to exclude evidence of the PTAB’s decision to institute the inter partes review – finding that it has “little probative value” and “would be confusing to the jury and prejudicial.” [OrderInLimine]

 

 

New Rules on PTAB Trials

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Earlier this year, the USPTO released a set of ‘quick fixes‘ to AIA trial procedures before the Patent Trial and Appeal Board (PTAB) and also promised second package of rule changes. That second package has now been detailed in the USPTO’s Proposed Rule Changes now found in the Federal Register. The proposed rules focus on a number of practical changes to PTAB Trial Procedures:

  • Testimonial Evidence (Such as Expert Declarations) in Patent Owner’s Preliminary Response (to be considered but viewed in the light most favorable to the petitioner when determining whether to institute an inter partes review proceeding)
  • Claim construction standards for patents about to expire (use actual construction for patents that “will expire” before final judgment rather than broadest-reasonable-interpretation)
  • Rule-11 Requirement associated with all papers filed with the PTAB – giving the USPTO “a more robust means with which to police misconduct.”

In her blog-post on the topic, USPTO Director Michelle Lee indicated that the USPTO will also “amend its Office Patent Trial Practice Guide to reflect developments in practice before the Office concerning how the Office handles additional discovery, live testimony, and confidential information.”

As part of the process, Director Lee also offers a “where we stand” set of statistics for the past three years of AIA filings:

  • 3,655 petitions, of which 3,277 are IPRs, 368 are CBMs, and 10 are PGRs.
  • 63% focus on patents from electrical/computer technology centers (TCs) and only 9% in the the bio/pharma TC.
  • Review Institution: Trials have been instituted on 1,389 of 3,277 IPR petitions, 185 of 368 CBM petitions, and 2 of 10 PGR petitions.
  • Trial results: 12% of total claims available to be challenged (4,496 of 38,462), were determined by the PTAB to be unpatentable in a final written decision. Other claims were either not challenged, resolved by settlement, cancelled, or upheld as patentable. Of the first IPRs to reach a conclusion, 25% of claims actually challenged (4,496 of 17,675) were found to be unpatentable.

According to Director Lee, the number of petitions is “around three times more” than what were originally expected by Director Kappos.

These statistics fit with those discussed by Richard Bone in his recent post.

Comments on the proposed rules go to trialrules2015@uspto.gov and discussions will be held at the upcoming roadshows: August 24, 2015 in Santa Clara, August 26, 2015 in Dallas, and August 28, 2015 at USPTO HQ.

Guest Post on Conflicting Claims: The Raw Statistics of PTAB Trials

Patent,

Guest Post by Richard Bone. Mr. Bone is a partner at the VLP Law Group.

The popular view of the PTO’s new AIA reviews, or “patent trials”, is that they have been disproportionately unfavorable to patentees in their outcomes, provoking characterizations such as “patent death squad” for the Patent Trial and Appeal Board (PTAB), the body that administers the trials.

Yet the PTAB’s own statistics paint a different picture: that, in fact, as few as 25% of patent claims challenged are actually held “invalid” by the PTAB, and that figure actually represents only 11% of all of the claims in all of the patents which received at least one AIA challenge. That being the case, patent owners ought to be less fearful than most commentators suggest.

To understand the discrepancy between published statistics and public perception, it’s necessary to dissect the data. Fortunately the PTAB has made various layers of data available on its website. The data is cumulative over all petitions filed from the inception of AIA trials, in September 2012. For all data, the PTAB counts proceedings that have received a final adjudication, whether that be as a result of a settlement, or a request for adverse judgment by the patent owner, or because the PTAB issued a final written decision. Between September 2014 and April 2015, the data was presented on three occasions, as a sequence of bar-graphs condensed into a single graphic. From April 2015, the PTAB has presented the data monthly in a more informative manner, with multiple graphic representations and an accompanying narrative. From both formats, it’s possible to see what is going on, though the numbers mask a number of subtleties.

Just as patents are asserted on a claim by claim basis, so invalidity is adjudicated claim by claim. The overwhelming majority of patent trials to date have been Inter Partes Reviews (IPRs), with almost all of the remainder being “Covered Business Method Reviews” (CBMs). Although the PTAB’s data through January 2015 was presented in aggregate form for the two types of proceeding, the more recent data shows that, statistically, the outcomes of the two types of proceeding are very similar. In both an IPR and a CBM, the petitioner (party challenging the patent) must identify the claims challenged, and advance a ground of invalidity of each. The fee structure for filing an IPR or a CBM includes a challenge to up to 20 claims of a patent, but exacts an additional fee of $200 per claim challenged in excess of 20. Subsequently, if the petition is accepted and trial proceeds, the PTAB levies a further fee of $400 per claim in excess of 15 on which trial is instituted. With this type of fee structure, and accepting that – beyond the filing fees – there is an effort and therefore a cost to prepare a separate argument for each claim challenged, and that there is also an overall page limit for the petition, many petitioners may have been choosy over which claims to challenge. In some cases that choice will have been based on the patent claims asserted in litigation, which need not have been all of the claims in the patent. In others, it will have been based on an assessment that, after demolishing certain well-chosen claims, what remains of the patent is essentially toothless.

So, according to the PTO, through July 2015, in patents for which AIA petitions were filed, 47% of the claims were challenged. This number is little changed from the 45% figure from September 2014. However, the July 2015 numbers, when broken down into the different types of proceedings, show that across all CBMs 58% of patent claims were challenged. This could be because of the longer page limits for CBM petitions (80 pages vs. 60 pages for IPRs) but could equally be because Section 101 challenges are permissible in CBM’s: when arguing invalidity of an independent claim under section 101, it is not significant additional effort to argue invalidity of claims depending from it.

It has to be assumed from the way that the data is characterized that trials recently instituted that have not yet received a final adjudication are not included in the data. Because of the fact that a patent trial typically takes 18 months from filing a petition to issuance of a final written decision, any large scale trend that has happened recently will take some time to be reflected in the PTAB’s cumulative averages.

In any case, just based on claims challenged to date, patent owners could see – on average – patents surviving with more than half of their claims intact, not adjudicated as patentable per se but simply not challenged. Furthermore, the PTAB’s latest charts suggest that the numbers do not include the petitions that were wholly denied, and thus did not result in a trial. Thus, the reported data is based on petitions that resulted in a trial on at least one challenged claim. The statutes governing inter partes review state that trial should only be instituted if “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition”, and this takes into account any preliminary response filed by the patent owner. If the petition was judged not to have met that standard for any claim challenged then trial does not proceed (the petition is “denied”): those claims are not included in the PTAB’s data and hence the overall numbers of surviving claims are actually slightly more favorable to patent owners because trial is not always instituted. It is difficult to calculate this effect precisely because in many instances multiple petitions are filed against a single patent and those several petitions are consolidated into a single proceeding for trial. It is not clear from the PTAB’s data how such petitions that formally do not proceed to trial on their own because they are subsumed into another proceeding are differentiated from those petitions that fall short on all challenged claims and thus lead to no trial on the challenged patent. Nevertheless, comparing fiscal years 2013, 2014, and the first 10 months of 2015, we are seeing a growing number of petitions denied: rising from 14% in 2013 to 32% in 2015, a trend that can only be welcome to patent owners.

The statistics for those claims on which trial is instituted become more complicated, however. As of September last year, the PTO reported that trial was instituted on 66% of challenged claims. By July of this year, that number had dropped slightly to 63% of all challenged claims in all types of petitions: however, CBM’s had an institution rate that was slightly above the average, at 65%.

At this point, looking at the situation from the point of view most favorable to patent owners, trial is only being instituted on 31% of the claims in the patents that have been challenged in an AIA review (and this may be a smaller proportion overall, if it is accepted that a growing number of petitions are being denied outright). It is also fair to say that any claim whose validity was challenged in an IPR or CBM petition and on which trial was not instituted has emerged from that process as a stronger claim, unless the claim escaped that evaluation because the parties entered a settlement even before the PTAB had issued a decision on whether to institute a trial.

Once trial has been instituted, however, patent owners appreciate that the claims proceeding to trial are in considerable jeopardy. For the claims that proceed to trial, the PTAB identifies 4 distinct categories of outcome: held unpatentable (in a final written decision); held patentable (in a final written decision); cancelled (e.g., by patent owner’s amendment), or disclaimed (by patent owner); and “remaining patentable”.

The last of these categories is perhaps the most controversial in the way that the numbers are presented, and one that has been least well understood. It arises from a settlement that precludes the need for a final written decision by the Board. According to the PTAB, by July 2015, 45% of all IPR’s in which trial was instituted were terminated by settlement. One has to assume that a common form of settlement permits the patent owner to retain their patent without an adjudication of invalidity of any of the challenged claims in return for dropping a contemporaneous infringement suit against the petitioner. Claims subject to a settlement in this way have been undoubtedly weakened by the fact of there being a determination of probable invalidity (an institution of a patent trial) in the public record, but they have nevertheless “survived” a formal written judgment from the PTAB.

Claims cancelled by the patent owner are a casualty of the proceeding and arise – most likely – from a desire by the patent owner to minimize the ongoing costs of defending the patent before the PTAB. In any view of the proceedings, an instituted IPR or a CBM is, to any patent owner, an expensive way to lose a patent.

The most important two categories, those claims that are found invalid, or whose patentability is upheld, by the PTAB in a final written decision are those that grab the headlines. Respectively, 42% and 9% of claims proceeding to trial are found invalid and valid. In the grand scheme of things, these are a small fraction of the total number of claims challenged (26% and 6%), and a still smaller fraction of the total number of claims in patents receiving challenges under the AIA. However, what is clear is that patent owners who have decided to fight to the very end are on the whole being severely bruised in the process. The PTO reinforces this point with a break out of 447 IPR trials to date that have “reached final written decisions”: in 2/3rds of them (295 trials), all claims on which trial had been instituted were found unpatentable; by contrast, only in 16% of final written decisions were all claims adjudicated to be patentable. In CBM’s these numbers are even further skewed in favor of petitioners: 79% of final written decisions in CBM’s involved wholesale invalidation of the claims taken to trial, whereas in only 4% were all of the claims upheld. When considered claim by claim, in CBM’s the validity of just 2% of claims are upheld in a final written decision of the Board.

There are a number of questions that the data do not answer: for instance, how many patents sustained a challenge to all of their claims and were ultimately found invalid in their entireties.

But it is clear how the gap between perception and the actual numbers can be bridged: final written decisions are on balance unfavorable to patentees, more so in CBM’s than in IPR’s. It is likely to be the most valuable claims that are contested in this way. Even though such claims represent a tiny proportion of all patent claims that came under jeopardy in an AIA review, it may be little consolation to patent owners that the claims they are left with – if any – are those they would have least interest in enforcing.

Employment Agreement Breach: Failure to Assign Can’t be Fixed Because of Statute of Limitations

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Personalized User Model and Konig v. Google (Fed. Cir. 2015)

This case involves a fascinating set of back-door dealings. While Konig was employed at the non-profit research institute SRI, he started a side project with a friend creating a personalized information service – the subject of the patent that he filed (apparently without offocially notifying SRI). It is Konig’s patent that is being allegedly infringed by Google. See U.S. Patents No. 6,981,040.

After Konig’s patent holding company sued Google for infringement, Google management then called-up SRI and obtained a quitclaim deed over “any rights” in the patent held by SRI. With those rights in-hand, Google argued in court that Konig had breached his employment agreement by failing to assign rights to the patents to SRI and that Google was now the rightful owner (of at least a right to have the patents assigned). The district court, however, found the breach-of-contract claim time-barred by its state-law statute of limitations.

Because Konig’s alleged breach-of-contract with SRI was in the 1990’s, it seems likely that the three-year statute of limitations term had passed. However, Delaware (the site of the lawsuit) has a “discovery rule” that tolls any statute of limitations for the period in which an injury is ‘inherently unknowable” and “the claimant is blamelessly ignorant of the wrongful act and the injury.” Of course, a simple search years ago of the patent database would have turned up Konig’s patent rights, but the Search Giant argued that search would have been “practically impossible.” In the appeal, the Federal Circuit agreed with the district court that Google’s arguments were not sufficient proof of the inherent unknowability of Konig’s alleged breach or proof of SRI’s blameless ignorance. In particular, SRI knew that:

Konig was leaving [SRI] to immediately work at a start-up technology company. Considering the competitiveness of companies and institutes in the technical world and, as Google has argued, that the technology was related to Konig’s work at SRI, his departure and new venture could well have been a “red flag” that should have generated an inquiry whether Konig had conceived an invention during his employment with SRI that he might intend to develop and commercialize with his new company.

More importantly, Google failed to show that SRI was blamelessly ignorant of Konig’s alleged breach of contract. Google’s attempts to dispense with its burden of proof for the blamelessly ignorant element of the discovery rule by arguing the futility of any inquiry do not compensate for its failure of proof. Despite the opportunities for SRI to have inquired about Konig’s departure and his new venture—the obvious one being an exit interview, at which an inquiry might have been made regarding whether Konig had made any inventions at SRI that had not been reported to SRI—the record is critically deficient on the minimum quantum of evidence necessary to show that SRI did anything to protect its interests. . . .

Employers do not need to track a former employee’s every movement for an indefinite period of time to look for potential claims, but there should be some basic level of diligence in looking after one’s interests.

Delaware also has a statutory tolling of causes of action when the would-be defendant is out of the state of Delaware. 10 Del. C. § 8117. Although not express in the statute, the district court held that the tolling did not apply when the cause of action had “no connection to Delaware.” On appeal, the Federal Circuit affirmed: “Although the statute on its face does not require any connection to Delaware, we agree with the district court’s disinclination to interpret the statute so broadly as to apply to any claim, claimant, or defendant.”

Recordation Prevents Straight Ownership Claim: Although the court does not go into it here, ownership of patent rights would not generally require proof of breach-of-contract. If SRI owns the patent rights then its sale of rights to Google should shift ownership, regardless of whether Konig was in breach of contract or not. One problem with that theory, however, is that the employment agreement does not appear an effective transfer of rights but only a promise to transfer. Thus, even under the employment agreement Konig remained owner until such time as he transferred ownership to the employer. A second problem with the theory involves the recordation statute – 35 U.S.C. 261, which suggests the recordation of the assignment to Konig’s company may be sufficient to extinguish Google’s purchased rights.

Versata v. SAP: Federal Circuit Claims Broad Review of CBM Decisions

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by Dennis Crouch

Versata v. SAP and the USPTO (Fed. Cir. 2015)

This an important decision stemming from the first Covered Business Method (CBM) Review Proceeding, the Federal Circuit has affirmed the PTAB properly cancelled the challenged claims for lacking patent eligible subject matter.  However, in petit Marbury v. Madison style, the court also exerted its power of review over the PTABs decisions, including whether the challenged patent is a “covered business method patent.”  Judge Plager drafted the majority opinion that was joined by Judge Newman.  In a concurring opinion, Judge Hughes wrote that “[t]he majority’s interpretation of § 324(e) to permit review of whether Versata’s patent is a ‘covered business method patent’ directly conflicts with our precedential decision in In re Cuozzo Speed Technologies, LLC, (Fed. Cir. July 8, 2015).”   The cited statute indicates that “the determination by the Director whether to institute a post-grant review [or CBM review] under this section shall be final and nonappealable.” Judge Hughes argued that the question of whether a patent fits within the CBM definition is answered at the petition stage and thus not reviewable on appeal.

In its decision, the court also directly ruled that CBM review proceeding (and thus future post-grant review proceedings) can include Section 101 challenges.  The statute provides that CBM/PGR proceedings can be used to challenge patent claims “on any ground that could be raised under paragraph (2) or (3) of section 282(b) (relating to invalidity of the patent or any claim).” 35 U.S.C. 321(b).  Section 282(b), in turn, reads as follows:

(b)(2) Invalidity of the patent or any claim … on any ground specified in part II as a condition for patentability.

(b)(3) Invalidity of the patent or any claim … for failure to comply with— (A) any requirement of section 112 [except best mode] or (B) any requirement of section 251.

In our 2012 essays, Professor Hricik and I explained an argument why subject matter eligibility does not fit within these invalidity grounds of Section 282.

Our argument was that the only way patent eligibility fits into Section 282 is under pat (b)(2) since “part II” of the Patent Act does include Section 101. However, not all sections of Part II (Sections 100 to 212) are conditions for patentability, and, in fact, only sections 102 and 103 are so-labelled.  The court agreed with our agument, but found it to be overwhelmed by history:

Versata is correct that a strict adherence to the section titles can support an argument that § 101 is not listed as a “condition of patentability,” but rather has the heading of “inventions patentable.” However, as noted by the USPTO, both our opinions and the Supreme Court’s opinions over the years have established that § 101 challenges constitute validity and patentability challenges. . . .

It would require a hyper-technical adherence to form rather than an understanding of substance to arrive at a conclusion that § 101 is not a ground available to test patents under either the PGR or § 18 processes. Section 101 validity challenges today are a major industry, and they appear in case after case in our court and in Supreme Court cases, not to mention now in final written decisions in reviews under the AIA. The numerous cases in our court and in the Supreme Court need no citation. . .

 

===

As Judge Hughes writes, a major portion of the ruling here is in tension with Couzzo because it allows the Federal Circuit to review whether the grant of the review was proper. However, because the PTO won its case, it seemingly has no right to appeal that particular issue.  As such, the majority opinion regarding reviewability could also be seen as simply dicta since, if they had decided that the CBM issue was not reviewable then the case would have also been affirmed.

 

Are Specific Information-Processing Claims Abstract Ideas?

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Guest Post by Jeffrey A. Lefstin, Professor of Law at the University of California, Hastings College of Law.

The Supreme Court’s decision in Alice v. CLS Bank resolved the easy cases: claims that merely recite a mode of organizing activity coupled with a generic instruction to “do it on a computer” or “do it on the Internet.” The key question left open by Alice is whether claims to specific information-processing techniques represent ineligible abstract ideas or eligible applications. Answering that question will be critical to resolving cases like California Institute of Technology v. Hughes Communications, Inc., and McRO v. Activision, discussed in Robert Stoll’s Patently-O post last month.

The patents in Caltech were directed to a method of generating error correction codes in digital transmissions. They described a method of generating parity bits by accumulating previously generated parity bits, and a sum of randomly chosen irregular repeats of message bits. Notwithstanding that the patents claimed only information-processing steps, Judge Pfaelzer of the Central District of California ruled that the claims were patent-eligible: while the claims were directed to the abstract idea of error correction, the algorithm for generating parity bits represented an inventive application of the underlying idea.

As Judge Pfaelzer recognized, that holding might be in tension with Digitech Image Technologies v. Electronics for Imaging, where the Federal Circuit, relying on Benson and Flook, suggested that any claim merely transforming information with “mathematical algorithms” is not patent-eligible. So Caltech squarely raises the question of whether specific information-processing algorithms are patent-eligible after Alice.

More generally, the significance of Benson and Flook after Alice is a critical question for future § 101 jurisprudence: much of the difficulty faced by the lower courts and the USPTO arises from attempts to reconcile the Supreme Court’s earlier caselaw with its decisions since Bilski.

It is time to acknowledge that they cannot be reconciled, and they need not be. While the Court maintains a pretense that all its opinions are coherent with each other, the regime the Court has crafted since Bilski represents a sharp break from its earlier decisions. Courts that continue to rely on Benson and Flook have not recognized the significance of Alice’s reaffirmation of the Mayo framework for patent-eligibility. For Mayo established both a different structure and a different rationale for subject matter eligibility than the Court had employed in its prior cases.

First, Mayo provided a new structure for the § 101 inquiry: step one is to identify an abstract idea or law of nature underlying the claim, and step two asks whether the claim further recites an ‘inventive concept’ that transforms the abstract idea or law of nature into a patent-eligible application. If that was not the analytical framework employed in the Court’s earlier cases, then the analysis and holdings of those cases are not necessarily relevant after Mayo and Alice. The Court itself told us in Bilski that its earlier opinions represented nothing more than explanations of the basic exceptions for laws of nature and abstract ideas.

Second, Mayo and Alice reoriented the rationale for subject-matter exclusions. Benson and Flook were premised in large part on the exclusion of subject matter not expressly authorized by Congress, the restriction of patents to tangible processes, or the exclusion of preexisting truths that exist apart from human action. Those premises were rejected in Chakrabarty, Bilski, and Alice, respectively. Instead, Mayo and Alice grounded subject matter exclusions on the ‘building-block’ concern: that patents on fundamental principles risk foreclosing more innovation than they promote.

Given the Court’s reorientation of the doctrine, Benson and Flook’s focus on ‘algorithms’ is no longer relevant. Abstract ideas, after Bilski, Mayo, and Alice, are not characterized by intangibility or field of invention. They are characterized by ‘fundamentalness’ – the concern that patents on basic concepts will foreclose too much further development. In this framework, a specific information-processing algorithm, such as an algorithm for generating parity bits, does not qualify as an abstract idea.

Caltech defined the abstract idea as the purpose of the claim, recited at a reasonably high level of generality: error correction, in the claims at issue. Identifying the abstract idea with the purpose or effect of the claim follows from the structure of the Mayo/Alice test. Step one defines the abstraction (if any) underlying the claim, while step two asks whether the application of that abstraction contains an inventive concept. The object of step one must therefore be to separate the idea of the invention from the means of application, which will be the subject of step two.

We already differentiate between idea and means of application in the law of inventorship: courts have long distinguished between formulating a goal, effect or result – which is not a contribution to conception – and formulating the means of attaining that result – which is a contribution to conception. So the Caltech analysis merely maps that long-standing distinction onto the subject-matter inquiry under § 101.

I discuss these ideas further, and develop a framework of ‘inventive concept’ applicable to both abstract ideas and laws of nature, in a forthcoming paper available here.

Questioning the Federal Circuit’s Reduced Flow of Information

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by Dennis Crouch

In a letter mailed on April 7, 2015, I joined with the Electronic Frontier Foundation (EFF) in calling on the U.S. Court of Appeals for the Federal Circuit to re-institute free public access to orders issued by the court.

Following former Chief Judge Rader’s resignation in 2014, the Federal Circuit stopped providing free public access the the vast majority of court orders.  These orders are still accessible through PACER, but that system is difficult and costly to use.

Although the court’s most substantive work is usually found in published opinions. Court orders can be substantive and important and the letter provides a few examples:

For example, an order involving ongoing royalties in cases involving Apple and VirnetX was not chosen for publication on the site, despite the high interest in the proceedings the case has generated, and the impact the order could have on the publicly traded companies. Another order barred Facebook from asserting invalidity defenses on appeal for procedural reasons – a matter of public interest because it could educate litigants about how to preserve issues on appeal, and because Facebook is a public company. Even in cases where the Court seeks public participation, it has not chosen to put relevant orders up on its website for public access. On December 30, the Court granted a petition for en banc rehearing of SCA Hygiene Products v. First Quality Baby Products, No. 2013-1564, announcing on its website that it invited amicus curiae briefs in the case. Rather than posting the order on its website, the Court instead directed interested parties to view the order on PACER. Because the case is sufficiently important to merit an announcement on the Court’s website, it was dismaying that the order was not selected for public access on the website.

The change that we propose is simple and fully within the Court’s power — we know this because the court was previously providing free public access to these documents as standard operating procedure.  My hope is that the Court will hear our respectful requests and make this appropriate change.

Michael Barclay and Vera Ranieri from EFF have also written on the topic in the EFF Deep Links Blog.

Interlocutory Appeal on Stay Decisions for CBM/PGR

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Intellectual Ventures v. JPMorgan (Fed. Cir. 2015)

IV has asserted a set of computer security patents against JPMorgan, some of which are directly related to electronic transactions.  Within a month of the civil action filing, JPMorgan responded by filing petitions for post-grant Covered-Business-Method (CBM) review of two of the five asserted patents.  JPMorgan then immediately requested a stay of litigation (noting that the patents-in-suit are also undergoing inter partes review proceedings).

The district court rejected JPMorgan’s stay request and the company filed this interlocutory appeal.  On appeal, however, the Federal Circuit has dismissed the case – finding that it does not (yet) have jurisdiction over the interlocutory case.

Section 18 of the America Invents Act provides a four factor test for determining whether to stay a civil action pending the outcome of a CBM transitional proceeding.

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set;

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

The statute goes on to provide for “immediate interlocutory appeal” of a district court decision on the motion for stay that is related to a CBM Proceeding and that the Federal Circuit will review the decision de novo.  Of course, that provision is an exception to the normal rule that the appellate courts only have jurisdiction to review final judgments of the district courts. 28 U.S.C. § 1295(a)(1) (2012). And further, judgments on motions to stay are normally considered interlocutory orders that are not subject to immediate appeal.

CBM Petition is not a CBM Proceeding: As I said, the statute provides for immediate appeal of district court stay decisions relating to CBM proceedings. Here, the Federal Circuit made a thin but important distinction by noting that the filing of a CBM petition is not itself a CBM proceeding. Rather, the CBM review only becomes a “proceeding” once the petition is granted.  Truthfully, the statute is not entirely clear on this point, but the court cobbled together is conclusion by noting: (1) the statute indicates that that the process is begun with the filing of a “petition for a [CBM] proceeding” which indicates that “a petition is a request for a CBM[] proceeding, not that the petition itself is part of the proceeding.”  The statute then indicates that it is the USPTO Director who “may institute a [CBM] proceeding” — an event that occurs after the filing of the petition.

Because the statute provides for no immediate appeal pre-CBM-proceeding, the Federal Circuit dismissed the case for lack of appellate jurisdiction.

= = = = =

In the big picture, this means that the challenger will likely still move for a stay immediately following the filing of a CBM/PGR, but if that is denied will need to renew that motion once the proceeding is initiated in order to create appellate jurisdiction. Meanwhile, the patentee may be looking to delay the petition decision and push the civil action more quickly in order to shift the balance of factors in its direction (toward denying the stay).

Million Dollar Mistake? The Cost of Limiting or Canceling IP Rights

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Guest post by  Cynthia M. Ho, Clifford E. Vickrey Research Professor, Loyola University of Chicago School of Law.

Philip Morris and Eli Lilly think that they are entitled to millions in compensation from countries that limit or deny desired intellectual property rights.  These companies are the first to challenge IP issues pursuant to international agreements protecting investments of foreign companies. However, they join a trend of companies increasingly suing states before a panel of private arbitrators pursuant to investor-dispute settlement (ISDS).  The substantial financial stakes may have a chilling effect on traditional domestic laws and policies.

Although there are only two IP related ISDS disputes so far, IP policy makers should be concerned and oppose pending fast-track legislation that would permit President Obama to easily conclude more agreements with these problematic provisions.  Indeed, pending agreements have been criticized by a diverse group of individuals and countries including Nobel Prize winner Joseph Stiglitz, Elizabeth Warren, the Cato Institute and countries such as France and Germany.  The USTR recently issued a fact sheet, which was promptly debunked.

What is ISDS?

ISDS is a mechanism in over 3000 international agreements that permit foreign investors to seek compensation against countries.  The agreements guarantee freedom from discriminatory measures, a guarantee of being treated no less favorably than domestic companies, compensation for expropriation of investments, and “fair and equitable treatment.”  If these rights are allegedly violated, investors can bring a dispute before a tribunal of private (usually commercial) lawyers chosen by the parties to the dispute. There is not only no independent judiciary, but also no binding precedent and no appellate review, such that there can be inconsistent and unpredictable results.

Historically, these provisions were first added to international agreements promoting investments after World War II when newly independent nations wanted to encourage foreign investment.  ISDS was intended to provide protection to companies that lacked any legal recourse against unlawful state action.  ISDS was conceived as an improvement over “gunboat diplomacy” that nations used to protect their companies.

Why is ISDS relevant to IP?

Although ISDS was not originally designed to protect IP, companies are trying to use it for this purpose.

Most agreements providing ISDS do so only for investments of foreign companies.  These investments can include not only tangible, but also intangible property, which would seem to include IP.

Is a Canceled IP Right an “Investment” Subject to ISDS?

Even if IP is within the scope of covered investments, a critical question is whether this should include canceled IP.  IP lawyers and even students know that IP is at most presumptively valid, such that it can and often is canceled when found to not meet basic requirements.  Although canceled IP has never been considered to provide rights, Eli Lilly assumes it has rights.  In particular, it is seeking $500 million from Canada after failing to convince both a trial and appellate court that two of its patents were valid.

Highlights of Existing ISDS Claims Regarding IP

Eli Lilly’s case involves a challenge to Canada’s “promise doctrine” for assessing utility of patents and applications that make certain promises.  The promise doctrine is unusual as a utility requirement, but similar to disclosure and other patentability  requirements of other countries.  Eli Lilly claims that because this doctrine developed after its patents were granted (a point that is contested, even by some lawyers), it is improper to retroactively apply it to invalidate its patents, such that its patents have been improperly “expropriated,” which is roughly similar, but broader than US takings.  However, patents are routinely invalidated after common law modifications to laws, such as the scope of patentable subject matter with no claims of takings.

Eli Lilly seems to assume both that an issued patent is a state representation that it will remain forever valid and also that a nation can not modify its laws without violating legitimate expectations.  The supposed violation of its legitimate expectations figures prominently in a claim for denial of the amorphous condition of “fair and equitable treatment.”

Problematically, although a patent lawyer would readily reject the idea that patents are always valid and untouchable by subsequent law, they will not be deciding Eli Lilly’s case. Notably, when I presented a forthcoming article about this case to an international law colloquium, I was surprised that the audience resisted the basic principle that patent rights can and should be invalidated when found not to satisfy fundamental requirements.

Philip Morris also claims its legitimate expectations were violated, but in a different way.  Philip Morris asserts that it had a legitimate expectation that Australia would uphold its obligation to comply with TRIPS requirements for trademarks.   This suit fundamentally challenges the process for resolving alleged TRIPS violations.  Only countries, not companies, have standing to adjudicate alleged violations under TRIPS.  Thus far, countries have been cautious in doing so since there are often political implications for their actions. Moreover, permitting violations of TRIPS to be litigated outside of the WTO forum would seem wholly inconsistent with the WTO dispute settlement process that is intended to be the only forum for litigating such disputes.  In addition, there could be conflicting results; indeed, there is a pending WTO case.

ISDS for IP Threatens Flexibilities Under TRIPS

Eli Lilly’s case poses a serious threat to the minimum standard approach of TRIPS (and NAFTA).  Although these agreements have been widely understood to permit nations flexibility to define key terms, such as what is “new” or what counts as “useful,” Eli Lilly falsely claims that Canada’s definition is impermissible.

Ironically, these cases are arising at a time when many academics and policy makers (Eastern Europe, South Africa) have been encouraging countries to take greater advantage of their already limited flexibilities under TRIPS.  The present disputes may have chilling effects at a time when countries such as South Africa and Brazil have been considering modifying patent laws.

Future Problems

In the near future, companies may use ISDS to challenge patent provisions, such as compulsory licensing and India’s patent law designed to prevent “evergreening” of drugs that have attracted criticism, but no WTO dispute.  Moreover, regulatory provisions are also ripe for challenge.  For example, countries that fail to provide data exclusivity desired by the pharmaceutical industry could be subject to challenge.  In addition, a pending EU law hailed by public health advocates for increasing transparency concerning data of approved drugs is also at risk.

Given the wide range of issues at the intersection of intellectual property and public health that are potentially threatened by ISDS, this should be an issue of major concern.  Those who want to preserve policy space for countries should oppose pending agreements that permit ISDS, such as the pending Trans Pacific Partnership Act, especially because there is no public access to draft text of pending agreements except through sources such as Wikileaks, which just released the secret investment chapter of the TPP, that permits ISDS.   Public opposition is important; the EU has now delayed consideration of ISDS in its pending Transatlantic Trade and Investment Partnership (TTIP) agreement with the US.  In addition, although “fast-track” legislation is presently stalled, it should be opposed if re-introduced mid-April.  In the meantime, you can join  a petition to Congress, or directly contact your Congressman to oppose fast track bills.

Cynthia is a Law Professor at Loyola University of Chicago School of Law.